DISTRIBUTED GENERATION AND DECOUPLING AND THINGS TURNING AROUND

Drunk with Power; The energy villain in your neighborhood
Bradford Plumer, October 2, 2009 (The New Republic)

SUMMARY
There are gaping holes in utility regulatory policies.

One prevents the capture of industrial waste energy that could, according to an Environmental Protection Agency (EPA) study, provide 19% of U.S. electricity — the equivalent of 95 nuclear plants — and eliminate 25% of fossil-fuel use for power generation.

Another blocks reform of transmission system structural failures that cost ratepayers $150 billion a year in outage and failed service losses and will cost $1.5 trillion to rectify.

A third discourages utilities from supporting the emergence of New Energy and Energy Efficiency because it only rewards them for selling the energy they generate, not for the energy their customers generate or save.

The costs of these gaping holes, and others, demand reconsideration of how utilities are allowed to operate.

Policies that reward consumers for building distributed generation, like feed-in tariffs, and reward utilities for driving efficiency, like decoupling, are about to turn everything around in the New Energy world.

Only the utilities don’t yet realize that.

A regulatory system that puts efficiency potential like this off needs fixing. (click to enlarge)

COMMENTARY
Energy entrepreneur Tom Casten attempted to set up a process by which a Louisiana manufacturer struggling to cut its overhead could capture, use and sell the gases that were a byproduct of its manufacturing processes. Arcane and backward-looking state utility regulations made this potentially win-win venture into Combined Heat and Power (Cogeneration) uneconomic.

The present U.S. utility regulatory structure was created in the 1920s to protect the interests of the 16 large “power trusts” that then controlled 85% U.S. electricity and tolerated no interference. They were able to write their own rules because, with power unavailable to 90% of the population, people at the time were grateful simply to get access to electricity.

The trusts’ power was broken when they crashed with the Great Depression. The New Deal's Rural Electrification Administration (REA), through a massive and publicly funded transmission building program, brought access for more people to electricity. It also brought regulation to power providers, allowing them to earn only a “reasonable” profit margin. Since that time, utilities have profited only by building big central generating facilities and selling massive volumes of power. There has been little to gain from spending to upgrade plants for efficiency or convert them to cleaner fuels.

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Today, 3,200+ U.S.utilities provide ~75% of the nation’s electricity. The average power plant was built in 1964 and remains efficient only to that era. The Clean Air Act exempts such plants from more modern regulatory demands.

Power is delivered via an antiquated U.S. transmission system which former CIA Director R. James Woolsey has described as more fragile, inefficient and vulnerable than any intentional design could make it. Its disruptions, failures and blackouts cost an estimated $150 billion yearly. Rectifying all this will cost ~$1.5 trillion, making rate hikes over the next few decades inevitable.

The present transmission system is an antiquated patchwork. (click to enlarge)

Yet the changes are not in the works and not expected to be. Utilities spent $161 million on lobbying last year, more than any industry but the pharmaceutical industry, and the message is simple: No changes.

Distributed generation could turn all that around and do to the utilities’ what the Great Depression did to the 16 power trusts. Rooftop solar, small wind turbines, local geothermal and the capture and recycling of industrial waste energy could turn individuals and small businesses into generators and providers of power.

The Smart Grid would complete the technological shift away from the central control by utilities, giving consumers the ability to understand their energy consumption and modulate it.

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The utilities would still play a role as primary power sources and grid operators but their ratepayers would have a voice in how and when they bought the power and whether it flowed from them to the utilities or from the utilities to them.

The new arrangement would decrease the need for new power plants, decrease the need for new transmission and allow the utilities to profit by selling power more efficiently as well as by selling distributed generation New Energy infrastructure like rooftop solar panels and backyard wind turbines as well as Energy Efficiency tools like Smart Meters and home monitoring systems.

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Keys to spurring this change are policies that reward consumers for building distributed generation (feed in tariffs) and reward utilities for driving efficiency (decoupling).

Existing policies to drive New Energy are in the form of tax credits, rebates and Renewable Electricity Standards (RESs). These place demands on utilities and provide incentives for the affluent but do nothing to assure the success of a New Energy investment for smaller entrepreneurs.

Feed in tariffs (FiTs) guarantee purchasers of small distributed generation New Energy systems like rooftop solar, small wind and combined heat and power (CHP) waste energy recycling systems an above-retail price for all the power they deliver to the grid for an extended (15-to-25 year) period. Assured of a hefty long-term return on their spending where FiTs have been implemented, consumers readily seek out New Energy.

FiTs also guarantee that small New Energy system builders will get connected to the grid, giving them the opportunity to promptly begin reaping returns on their investment. This turns out to be a crucial element in the design of an FiT law because in the absence of such a provision many utilities have been widely known to do their best to keep small New Energy systems in unconnected limbo.

Yet the U.S. has no feed in tariff. (click to enlarge)

Well-designed FiTs made Germany the world leader in solar and wind; less well-designed FiTs were problematic in Spain. The Canadian province of Ontario is experiencing a New Energy boom as the result of newly instituted FiTs and many U.S. utility commissions are watching the first large-scale North American experiment closely.

California’s efficiency record, sparked by decoupling provisions initiated in 1982, has been the standard against which all other efficiency records are measured. Decoupling rewards utilities more for reducing the energy consumption of their customers, through a small tax on all ratepayers, than the utilities could earn from selling greater quantities of energy. While U.S. per capita consumption has almost doubled, California’s has not gone up. Its major utilities have grown prosperous despite spending ~$1 billion last year alone promoting efficient appliances and green building.

Other states have followed California’s example and instituted decoupling. It has been uniformly successful in reducing per capita consumption and leaving utilities who use it effectively unharmed. (See DECOUPLING WASTE FROM GREED, COUPLING EFFICIENCY WITH NEW ENERGY)

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There are examples appearing in the U.S. of utilities chancing transition. In Boulder, Colorado, Xcel Energy is instituting a Smart Grid experiment. Results are so far uncertain. Skeptics point out it is expensive. One estimate, assuming a $100 million cost and an eventual 25,000 customers, puts the cost at $4,000 per customer. In the absence of an established and uniform national standard for Smart Grid interconnections, with Smart Technologies changing at the speed of Moore’s Law (every 18 months to 3 years), utilities like Xcel that venture into the unknown risk a great deal.

In Gainesville, Florida, Gainesville Regional Utility (GRU) has instituted a municipal FiT with some degree of success and California's Governator just this week signed what may end up being the most ambitious U.S. experiment with FiTs ever. In Austin, Texas, Austin Energy is implementing municipal efficiency programs. But these small scale experiments do little more than point the way and reveal the gaping holes that need filling.

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For good and unfortunate reasons, utilities remain reluctant to change. Recalcitrant directors do not want to face daunting new ways and ratepayers are cynical of progressive approaches that look like utility company schemes. In the absence of policies such as FiTs and decoupling, change is difficult and, perhaps, unlikely.

Would more competition drive utilities to change? It might have before the Enron scandal. Now deregulation and competition are 4-letter words in the utility realm. And if the companies were willing to make such moves, consumers never were enthusiastic and are now even less willing to believe in them.

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An Arkansas official during President Clinton’s governorship there recently told NewEnergyNews they had introduced a program that would install a complete efficiency makeover for low income homeowners and take payback from the energy savings on the monthly bill, charging the homeowners absolutely nothing. The program died for lack of acceptance. Duke Energy’s more recent experience with a similar program in North Carolina was like that in Arkansas in the early 1980s.

There is only 1 thing left that might drive a transition to new policies and practices: Global climate change. Skeptics disdainfully call climate change an imagined concoction by environmentalists and Al Gore. For its impact on some utilities, it has been as effective as if it had been designed to move them - though global climate change is, in fact, all too real. And it is becoming all but undeniable that human generated greenhouse gas emissions (GhGs) are its driving force.

Utilities like Xcel, Duke and FPL got behind the Obama administration’s efforts to establish a cap&trade system, a market-based GhG-reduction program aimed at cutting U.S. GhGs 17-to-20% by 2020 and 83% or more by 2050. Their participation has been crucial to the limited success the law, part of larger energy and climate legislation now working its way through Congress, has had. At the same time, their participation has shaped the law so as to reinforce central control of power generation and dramatically cut back policies supportive of distributed generation and efficiencies.

Insiders agree the changes in policy needed to reshape the big utilities’ control of the kinds of energy being used in the U.S. and the way those energies are used will not be the first changes that result from the nation’s concern with climate change.

On the other hand, people are beginning to understand there are affordable ways they can make some of their own energy and there are technologies as simple as cell phones with which they can manage their use of energy, so the pressure on the utilities will only grow. One way and another, things are already starting to turn around. Momentum is gathering behind technologies and policies that will work.

Both the energy and climate bills from the Senate and... (click to enlarge)
...House were shaped to make the burden on utilities and power companies minimal in the early stages. (click to enlarge

QUOTES
- Gifford Pinchot, pioneering conservationist and Governor of Pennsylvania, describing the 16 power trusts: “Nothing like this gigantic monopoly has ever appeared in the history of the world…Nothing has been imagined before that remotely approaches it in the thoroughgoing, intimate, unceasing control it may exercise over the daily life of every human being within the web of its wires.”
- 1969 Fortune Magazine description of utility operators: “…generally unimaginative men, grown complacent on private monopoly and regulated profits.”

- Mike Morris, CEO, American Electric Power “[Decoupling is] an intriguing idea, but it can be very difficult to explain to people…You can almost hear the outcry down the road: ‘You mean we’re still paying you for fewer sales?’”
- Tom Casten, energy entrepreneur: “The system is set up to encourage central generation…It’s like we’re forcing citizens to pay extra to heat the planet…”

From VoiceofAmericans2008 via YouTube

- Adam Browning, director, Vote Solar Initiative: “[Utilities] basically move along the five stages of grief—first there’s denial, then bargaining, and, finally, acceptance. Getting to that final stage takes a big cultural shift.”
- Kurt Yeager, Galvin Electric Initiative: “The Enron debacle in California really poisoned the waters for that debate…We need to understand that we could have a much better power system than the one we have now.”

- Tom Kuhn, head, investor-owned utilities advocate Edison Electric Institute: “About two-and-a-half years ago, we decided we wanted to take a proactive position on dealing with climate change…We had our CEOs working intensely on fleshing out what technologies would enable us to do this job, how the economics would work, how we’d mitigate costs to our consumers.”
- Dave Hamilton, head, Sierra Club global-warming program: “They made a deal to try to freeze a reality that may or may not be able to be frozen…”

- Allan Schurr, Vice President, IBM energy and utilities group: “It’s long been conventional wisdom that it’s much easier and cheaper to build those big plants…But, when we interviewed customers, we found a strong appetite for individuals having control over their own energy future.”
- Mark Brownstein, former utility official, presently with Environmental Defense Fund: “…[A]s a follow-on to cap-and-trade, we will likely see further discussions about utility regulatory structures…There’s a lot of reason to think we’re not done with that conversation.”